L&G slams Truss for meltdown

THE chairman of Legal & General has slammed Liz Truss for creating market chaos that drove several pension funds to the brink of collapse.

Sir John Kingman, a former Treasury mandarin, said no one expected the Government to push ahead with policies that would create ‘such extraordinary instability’, referring to Kwasi Kwarteng’s mini-Budget in September.

L&G is one of the UK’s biggest sellers of so-called liability-driven investment (LDI) strategies.

LDIs are used by final-salary pension schemes to ensure they can meet future payouts, while hedging against inflation and interest rate movements.

They allow a pension scheme to borrow to increase its exposure to gilts, or government debt, freeing up more money to invest in riskier, higher-returning assets like equities.

But when gilt prices plunged in the aftermath of Kwarteng’s miniBudget, the banks that had lent to LDI funds demanded more collateral – meaning the funds were pushed into a fire sale of assets to raise cash. This left some on the brink of collapse, with the pension funds which had used them facing heavy losses.

L&G chief executive Sir Nigel Wilson added the speed of the market crash ‘caught us all by surprise’.